How did Buffett became arguably the most successful investor in history? Time, and control.
EXPERT OPINION BY JEFF HADEN @JEFF_HADEN
When Warren Buffett retired earlier this year from Berkshire Hathaway, he left behind a legacy of investment principles. Like:
- Why it’s better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Why you should only invest in businesses you understand.
- Why you should always buy with the intention to hold for the long-term; if not, why buy?
The results were astounding: If you had bought $10,000 in Berkshire Hathaway stock when Buffett took over the company in the 1960s, that investment is worth over $500 million. (An increase of nearly twice that of the S&P 500 over the same period.)
How? Obsessive work habits and attention to detail, for one thing, yet Buffett’s decades-long focus is difficult to emulate: imagine reading tens of thousands of financial reports, and enjoying it.
Yeah, no. But there are two keys
Yeah, no. But there are two keys to Buffett’s success we can embrace: time and control.
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First, time. In his 1965 shareholder letter, Buffett called it the Methuselah technique: living a long life, earning a high rate of return, and as Buffet said, “a combination of both (especially recommended by this author).”
Here’s an example. Say you invest $5,000 and replicate Buffett’s 20 percent annual return. Over time, here are the gains on your initial $5,000:
- 5 years: $12,441
- 10 years: $30,957
- 15 years: $77,015
- 20 years: $191,688
- 25 years: $477,254
- 30 years: $1,188,118
- 35 years: $2,958,984
- 40 years: $7,368,449
That’s the power of compounding. That’s why Buffett was worth $300 million at age 50. That’s why Buffett was worth $3 billion at age 65. That’s why Buffett is worth over $150 billion today (even after giving away nearly $72 billion to charities).
Source: www.inc.com
